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What does Jack Dorsey's departure as Twitter CEO mean for Square?

Jack Dorsey, who has long held the CEO role at both Square and Twitter, is stepping down from his leadership role at the social network in a move that could enable him to devote more energy to the fintech's growth strategy.

With no indication that Dorsey will leave his job at Square or take on additional work to fill his schedule after leaving Twitter, the entrepreneur is free to play a more hands-on role in the growth of Square's new financial services unit, its Bitcoin trading business, buy now/pay later lending and embrace an emerging trend that marries social media and e-commerce.

"Square is well positioned in the financial services space to do a lot of things," said Daniel Keyes, an analyst at Javelin Strategy & Research. "While it's hard to know what one executive will do, it's understandable why he'd want to focus more on Square," given Dorsey's enthusiasm for Bitcoin and other areas where the payments company is positioned for growth.

Dorsey has championed Bitcoin for years, and revenue from cryptocurrency trading contributes nearly three- quarters of Square's revenue. Square earlier in November released a white paper describing a protocol to exchange digital assets such as cryptocurrency called tbDEX. The protocol could build a wider audience for cryptocurrency.

Square is also working on building TBD, a new division to build and manage decentralized financial services, including tbDEX.

"Given Dorsey's clear edge in cryptocurrency and Bitcoin, if he's dedicating his time to Square he'll be able to boost his involvement with these projects," Keyes said.

Jack Dorsey bitcoin background
Jack Dorsey has been increasingly outspoken about Bitcoin, a major contributor of revenue for Square.
Bloomberg

Square launched its financial services business in March, and has an industrial banking license that allows it to offer products such as merchant credit directly to its clients. At the same time, Square is expanding access to its Cash app to teens and has agreed to acquire the Australian buy now/pay later lender Afterpay for $29 billion.

All of these efforts combine to make Square more competitive with technology firms such as Amazon, Apple and Facebook; and the bank-supported Zelle peer-to-peer network.

"Jack Dorsey can leverage his unique understanding to launch a Venmo-like social payment infrastructure for [the Cash App]," said Richard Crone, a payments consultant.

Crone compared the strategy to that of China-based PinDuoDuo, which launched in 2015, uses social media, gaming, and other digital experiences, helping the company become China's second largest e-commerce platform behind Alibaba.

"Part of the reason for Amazon accepting Venmo is in preparation for launching a PinDuoDuo-style social commerce," Crone said.

Of Dorsey's two companies, Crone says Square is better positioned to offer social payments. Despite Twitter's reach as a social network, the company's financial services capabilities are focused on in-app payments.

Parag Agrawal, Twitter's chief technology officer, is taking over the CEO role following Dorsey's departure. Twitter announced that the leadership move is immediate and Dorsey will remain a board member of Twitter until his term expires in 2022.

Dorsey has been CEO of Twitter twice. He led the company from its founding in 2006 until 2008, when Twitter's board forced him out after a series of outages. He returned to the CEO role in 2015, replacing Dick Costolo.

Investors have recently pressured Dorsey to step down as CEO of Twitter, with Elliott Management founder Paul Singer calling on Dorsey to step down as CEO of either Twitter or Square.

Twitter's stock has increased 85% since 2015 and Square's stock has increased more than 1,500% since its initial public offering in 2015.

Twitter reported a third-quarter net loss of $537 million, after reporting a $29 million profit for the third quarter of 2020, though Twitter attributed that loss to a one-time charge of $766 million stemming from a settlement the company reached in September tied to allegations it misled investors about user growth.

In Square's third-quarter  report, the payments company reported a 43% surge in profits to $1.13 billion, largely due to the success of the company's Cash App. Revenue from Bitcoin trading in the most recent quarter was $1.82 billion, up 12% from the prior year.

"To maximize shareholder value you want a good CEO 100% engaged and focused on one company, not splitting time," said Eric Grover, a principal at Intrepid Ventures. "So Dorsey giving up the reins at Twitter should be a positive for Square."

Twitter did not comment beyond confirming the news. In a tweet, Dorsey said "there's been a lot of talk about the importance of a company being founder-led. Ultimately I believe that's severely limiting and a single point of failure. I've worked hard to ensure this company can break away from its founding and its founders." Dorsey also said "Parag has been behind every critical decision that helped turn [Twitter] around."

Dorsey founded Twitter in 2006 with Biz Stone, Evan Williams and Noah Glass. Dorsey is also a founder of Square, along with the entrepreneur Jim McKelvey. Dorsey did not address Square in his tweet. Square's PR office on Monday said there are no management changes on its end.

"Square doesn't look like a company in need of a shakeup," said Rick Oglesby, president of AZ Payments Group.

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